My rental property suffered hail damage a couple years ago. I filed insurance claim for roof, fence and interior ceiling damage from roof leak. This hail storm also had high winds and driving rain. The insurance company would not cover all damage so I had to get a lawyer. In 2020 I claimed the roof replacement and also included what amount I did receive from insurance company at the time. In 2021 the insurance company gave me a check for settlement for damages not yet repaired (waited to get money to be able to do repairs). The repairs were not completed in 2021 but will be in 2022. Do I need to claim the settlement payout from insurance company as income on m 2021 return? Are there any options to handle this since the settlement is not in sync with repairs?
Settlements that you receive as part of an insurance claim or settlement are typically not taxed. The exception to this is if you have extra money left over from your claim after your property has been replaced or repaired. The unused settlement amount would be taxable
To clarify, the insurance settlement was received in 2021 but repairs will not be completed until later this year in 2022 so I don't have completed costs yet for repairs to be done. Therefore I don't know if there will be surpluss settlement amount or not? Please clarify if any of the settlement should be taxed in 2021 return? Or wait until repairs are completed and and then figure what, if any surplus, should be reported as income in 2022 (assuming all repairs are completed in 2022)?
For example, I received $10K settlement in 2021. $8K is spent on repairs in 2022. Do I reflect $8K as property improvement and depreciate as well as declare $2K income in 2022 even though the settlement was received in 2021? Repairs are going to include replacing drywall, install texture on ceiling & walls and painting as well as some other misc labor & material.
You would not report this on your 2021 return. Since the repairs have not been completed, you don't have an accurate amount to enter in the return as taxable.
Wait until the repairs are completed in 2022 to see what the final amounts will be for the repairs.